Disinvestment is a financial strategy that involves the sale of government shares in public sector enterprises (PSEs) to either strategic or financial buyers. This can be done through stock exchanges or directly to the buyers. The funds generated through disinvestment are often utilized for social and infrastructure projects and to reduce the fiscal deficit of the government.
There are three primary types of disinvestment methods:
– Minority Disinvestment: Where the government retains more than 51% ownership in the company, allowing management control.
– Majority Divestment: The government transfers control to an acquiring entity yet retains some shares.
– Complete Privatisation: Here the government sells 100% stake to the buyer.
In India, the Department of Investment and Public Asset Management (DIPAM), which is under the Ministry of Finance, handles the disinvestment process.
The Need for Disinvestment
The need for disinvestment primarily stems from the need to cut down the fiscal burden on the government and foster private ownership and open market trading. It plays a pivotal role in encouraging private sector investment, improving the operational efficiency of PSEs, reallocating resources towards other priorities, and promoting transparency and accountability in their functioning.
Performance of Disinvestment in Recent Years
Over the past few years, disinvestment has played a significant role in India’s finance structure. For instance, in 2017-18, the government was successful in generating disinvestment receipts of over ₹1 lakh crore against a set target of ₹72,500 crore. In 2018-19, it earned ₹94,700 crore when the target was ₹80,000 crore.
However, the disinvestment target for 2022-23 has not been met so far. As of now, only Rs 31,106 crore has been realised, with a significant portion coming from the IPO of 3.5% of shares in the Life Insurance Corporation (LIC).
Disinvestment Plan for 2023-24
In the Union Budget for 2023-24, there was a significant cut down of nearly 21% in the disinvestment target from the budget estimate of the ongoing year to Rs 51,000 crore. This is the lowest target set in the past seven years. For this fiscal year, the government does not plan to add new Central Public Sector Enterprises (CPSEs) to the divestment list. Instead, it plans to proceed with the already announced privatisation of select state-owned companies like IDBI Bank, Shipping Corporation of India (SCI), Container Corporation of India Ltd (Concor), NMDC Steel Ltd, BEML, HLL Lifecare, among others.
The Challenges of Disinvestment in India
Despite the merits of disinvestment, there are several challenges that make the process complex and slow-paced. These include political opposition, issues related to valuation of PSEs, labour-related issues, lack of interest from potential buyers, regulatory challenges and legal challenges.
The Way Forward
To promote economic growth and development in India, disinvestment is seen as a key strategy. It aims to generate revenue, improve efficiency of public sector enterprises, boost economic growth and shape a more sustainable economy. The government must continue to prioritize its disinvestment programs while making efforts to address the associated challenges.
